29 May, 2009 - deVere Insight - 29th May 2009

VIEWS – In this edition we feature the views on Fixed Interest from HSBC Private Bank

http://www.hsbcprivatebank.com/perspective/market-views-fixed-income.html

and the Global Market Outlook from Fidelity International

http://www.fidelity-international.com/docs/volatility/GlobalMarketUpdate.pdf

HEADLINES

Data raises hopes worst of downturn may be over

Pound jumps to 6-month high vs dollar

Europe shares close higher, up for third month

World to emerge from crisis "early 2010"

Oil hits 6-month high above $66

FTSE ends up in May

U.S. economy contracts less in Q1

CURRENCIES –

Sterling jumped to its highest level in more than six months against the dollar on Friday and was on track for its biggest monthly gain since 1985 as improved investor sentiment stoked demand for riskier currencies.

Increasing optimism that the global economy is over the worst of the recession, helped by firmer economic data out of Japan and Germany, sent the dollar tumbling to its lowest level this year against a basket of currencies.

Concerns about mounting U.S. debt also weighed on the dollar, while gains in equities and commodities, including a 1.5% rise in UK shares and oil prices at a 6-month high, buoyed perceived higher risk currencies such as sterling.

Hopes that the economy in particular is on the road to recovery continued to help sterling too, with Nationwide reporting a 1.2% rise in house prices during April.

"This is a story of broad dollar weakness against all of the major currencies, and sterling has been amongst the best performers," Brown Brothers Harriman currency strategist Audrey Childe-Freeman said.

"Let's not forget too that when the dollar was strengthening, sterling was always one of the worst performers. The momentum in sterling is strong and it could move higher," she added.

At 3:16 p.m., sterling rose 1.1% against the dollar to $1.6105, having earlier hit its highest level since early November at $1.6183.

So far this month sterling has risen by around 9% against the U.S. currency, leaving it on course for its biggest monthly rise since March 1985.

Against a broadly stronger euro, the pound dipped, however, with the single currency up 0.2% at 87.66 pence as month-end buying in the euro against the dollar supported the European unit.

There was further good news from major retailer John Lewis, which reported its strongest week of the year so far, with department store sales up 2% last week.

A consumer confidence survey gave mixed signals, however, with an improvement in Britons' expectations for their own finances offsetting rising gloom over the economy.

The GfK/NOP index was unchanged at -27 this month, ending three months of consecutive gains and coming in just below the consensus forecast of -25.

Although market participants cheered the rise in UK house prices reported by Nationwide, some analysts warned against getting carried away, arguing the Bank of England still has its work cut out to get a weak economy growing again.

"Housing market activity remains very low by past norms and our expectation is that the pick up in activity will be both gradual and fitful for an extended period given still very poor economic fundamentals and relatively tight credit conditions," Global Insight economist Howard Archer said.

Focus next week will turn to the Bank of England's policy meeting on Thursday. Rate-setters are fully expected to leave interest rates on hold at their record low 0.5% and focus will centre on any news on the central bank's quantitative easing programme.

Median forecasts in a poll conducted by Reuters showed analysts expect the bank will eventually spend 150 billion pounds on the programme, with 50 out of 57 polled saying the plan will be effective or very effective.

The Bank announced a £50 billion top-up to its programme of asset purchases earlier this month, taking its current fund up to £125 billion.

MARRAKECH - The global economy is likely to emerge from crisis early next year but even after that financial systems will need to be monitored closely, the head of the International Monetary Fund said on Friday.

"We expect to get out of the crisis early in 2010, especially if a clean-up of certain segments of the financial system is carried out," IMF Managing Director Dominique Strauss-Kahn told a conference in Morocco.

"We should not forget the task of continuing to monitor the global system once we emerge from the crisis," he said.

Improving economic news has been emerging across the globe lately, from U.S. GDP to Japanese factory output and British house prices to German retail sales, raising hopes that the world economy was responding after months in intensive care.

U.S. data on Friday showed the giant economy did less badly than government had feared in the first quarter, shrinking 5.7% instead of the initial forecast of 6.1%.

Speaking later in a panel discussion, Strauss-Kahn said signs that the effects weighing down the global economy were easing would become clearer in September and October this year, with growth returning early in 2010.

But he added: "The return to growth does not mean the end of the consequences of the crisis."

In his speech earlier, Strauss-Kahn said there were lessons that the international financial community should draw from the crisis.

"We draw two conclusions," he said. "We have an awareness of the global climate but we do not have a ready answer for that global reality." 

NEW YORK - Improving vital signs across the globe, from U.S. GDP to Japanese factory output and British house prices to German retail sales, raised hope on Friday the world economy was responding after months in intensive care.

The U.S. economy shrank 5.7% from the first quarter of 2008, less than the previous estimate of 6.1% and slightly worse than market expectations for a 5.5% fall.

The report confirmed that economic activity declined for three straight quarters for the first time since 1974-1975, but U.S. stocks  rose in part on data showing corporate profits after taxes increased 1.1%, the first increase in a year and a turnaround from a 10.7% drop in Q4.

"It's supportive in that it's not as bad. It's better than down 6.1% originally. It's another set of data that's not as bad as expected," said Frank Lesh, a futures analyst and broker at Futurepath Trading.

World stocks traded around 2009 highs and the dollar weakened in part on sentiment that worldwide recovery was nearing and the greenback was no longer so crucial as a safe haven. The dollar has also been falling on worries about the ballooning U.S. budget deficit.

The potential General Motors bankruptcy also hovered over the world financial picture as GM shareholders and bondholders braced for a Chapter 11 bankruptcy expected by Monday's restructuring deadline.

With U.S. and foreign automakers, suppliers, workers and retirees all holding a stake in the outcome, GM and Canadian auto parts group Magna International reached an agreement in principle that could rescue GM unit Opel.

But the German government, which is trying to protect the future of Opel, said there was no guarantee a final deal could be reached on Friday. Italy's Fiat, a potential buyer for Opel, skipped a crucial round of talks in Berlin and complained that "more cannot be asked" of it for a takeover. 

DUBAI - The total value of land transactions in Dubai last week reached Dh1.79 billion, of which sales exceeded Dh1.14 billion.

The total value of mortgages during the period was Dh655.91 million, according to the Land Department.

A total of 90 sale transactions were registered with the Department by the end of the week, the most valuable of which was a plot in Jebel Ali that was sold for Dh29.88 million.

The next two most prominent sales saw a second plot in Jebel Ali acquired for Dh28.80 million and another in Jebel Ali for Dh24.75 million.

The Emirates Hills 2 area was the most active in terms of the week's sales, with some 22 transactions. Emirates Hills 3 followed it with 10 sales.

During the period, Emirates Hills 2 recorded the highest turnover by value, at Dh88.89 million, followed by the Jebel Ali area, Dh83.45 million, and Palm Jumeirah area, Dh71.37 million.

The biggest area sold was the 72,418-square-foot plot in the Al Barsha South 3 area, which went for Dh19.01 million.

A 43,614-square-foot plot in the Emirates Hills 3 area was acquired for Dh7.07 million, while 43,614-square-foot area in Emirates Hills 3 was disposed of for Dh8.72 million.

During the period under review 63 mortgages worth Dh433.53 million were registered.

Villas in freehold areas witnessed the registration of 533 sales transactions out of which 481 were for apartments for a total of Dh397.32 million and 52 for villas at a total of Dh88.58 million.

WASHINGTON - The U.S. economy contracted slightly less than initially estimated in the first quarter, while corporate profits rebounded, according to a government report on Friday that pointed to moderation in the recession.

Perceptions that the worst of the 17 month old downturn was over pushed consumer confidence to its highest level in eight months in May. A report showing business activity in New York City expanded in May for the first time since January 2008 offered a further hint the recession was abating.

Gross domestic product, which measures total goods and services output within U.S. borders, dropped at a 5.7% annual rate in the first quarter, the Commerce Department said, less than the initial 6.1% estimate. The decline followed a 6.3% contraction in the fourth quarter.

While the drop in activity was still steep, recent data have suggested the rate at which the economy was tumbling was easing and many economists expect growth to resume by year-end.

Still, output has declined for three straight quarters for the first time since 1974-1975 in a contraction that is the deepest since at least the 1950s. Already, the recession is the longest since the Great Depression, although much less severe.

"The recession is easing. The second quarter is shaping up to be a smaller decline of about 3.0 to 3.5%. It should be the last of the negative quarters," said Christopher Low, chief economist at FTN Financial in New York.

But the positive outlook for the economy was tainted somewhat by a report showing business activity in the country's Midwest unexpectedly fell sharply in April, likely reflecting troubles in the automotive sector.

That report caused U.S. stocks to surrender earlier gains, while government bond prices rose modestly. 

ABU DHABI - All projects of the state-owned Abu Dhabi National Oil Company (Adnoc) are on track despite the current global economic downturn, a senior company executive said here on Thursday.

"At Adnoc, we are going ahead with all our projects. We are not stopping," Ali Rashid Al Jarwan, general manager of Abu Dhabi Marine Operating Company (Adma-Opco), an Adnoc group company, told reporters on the sidelines of a two-day conference on preparing future leaders in the oil and gas industry.

Yousef Omair Bin Yousef, Adnoc's chief executive officer, said on Monday the company plans to award projects worth up to $50 billion (Dh184 billion) in 2009-10.

"In Adnoc we look at the bright and positive side of the crisis which has created a window of opportunity in order to execute our giant projects at lower cost and better quality," Bin Yousef said at the opening of the Gastech-2009 exhibition and conference in Abu Dhabi, which ended yesterday.

Badria Khalfan, Human Capital Manager at Adma-Opco said there have been "no layoffs in the entire Adnoc group" resulting from the impact of the global economic crisis.

"We are still hiring and expanding," said Khalfan.  The Adnoc group has about 15,000 employees.  Al Jarwan said Emiratisation in Adma-Opco is currently 54%.

HONG KONG - Hong Kong shares jumped 1.6% on Friday, with the main index finishing above 18,000 points for the first time since October 2008, as energy issues were propped up by higher oil prices and banks were lifted by favourable broker ratings.

The benchmark Hang Seng Index was up 285.73 points at 18,171.00, piling on 6.4% for the week.  The China Enterprises Index of top mainland companies was 2.2% higher at 10,428.19.

MEXICO CITY - Mexico's peso strengthened and stocks gained on Friday after data in the United States and Japan fueled hopes the worst of the global economic downturn is over.

The peso traded 0.57% stronger at 13.176 per dollar, giving up some earlier gains after the central bank said it would trim sales of Mexico's dollar reserves.

The IPC stock index rose 0.50% to 24,781 points, led by retailer Elektra, which jumped 4.59 percent.

Revised first-quarter U.S. GDP figures showed less of a contraction than initial estimates, while another report showed Japanese factory output jumped in April at its fastest rate in more than a half century.

The data boosted "further speculation that the worst of the global recession may be over," RBC Capital Markets said in a note to clients.  Mexico sends about 80% of its exports to the United States.

But holding the peso currency back from further gains, Mexico said on Friday it will reduce dollar sales meant to boost the peso since the currency has recently stabilized.  Before the announcement, the peso had strengthened to as high as 13.04 per dollar.

In stock trading, holding company Carso Telecom, which is owned by Mexican billionaire Carlos Slim, drove the rally, gaining 1.01% to 51.98 pesos. Slim uses the company to control fixed-line telephone giant Telmex.

Banorte bank, which on Thursday said it would soon list its shares on the Madrid stock exchange, rallied 2.89% to 31.36 pesos.

Cement maker Cemex advanced 1.49% to 12.95 pesos, while its New York traded shares gained 2% to $9.85.

JOHANNESBURG - South Africa's Imperial Holdings Ltd is in talks about selling its 49.9% stake in asset financier Imperial Bank Ltd to joint owner Nedbank Group, it said on Friday.

Imperial and Nedbank each own about 50% of Imperial Bank, which provides loans for vehicles and property, and which had net interest income of 1.7 billion rand ($213.3 million) as of Dec. 31, 2008.

Shares in Imperial rose nearly 4% after the announcement and one analyst said the deal would allow it to focus on its main activities of auto retail and rental and logistics.

"Selling the stake is probably part of a new strategy, and it might give them more time and energy to focus on its core business," one analyst said.

Shares in Imperial Holdings were up 2.01% to 59.98 rand, outpacing a firmer JSE Mid-cap index, while Nedbank stock was up 0.93% to 91.39 rand.

Imperial, which provided no further details about the discussions, said that, if concluded, the deal may affect the price of its shares. Nedbank said a further announcement would be made in due course.

Analysts were unable to say how much Nedbank, South Africa's fourth biggest bank, would pay for the stake but said it made strategic sense for the bank.

"Nedbank provides funding (for Imperial Bank), it probably makes sense for them," a Cape Town-based analyst said, adding Nedbank would need to diversify Imperial Bank away from reliance on Imperial Group's auto and logistics businesses.

Nedbank currently provides risk management support to the joint venture, whilst Imperial provides access to its extensive network of business operations throughout South Africa.

FRANKFURT - German small and midcaps are faring much better than large companies during the current market recovery, offering high returns for risk-prone investors, according to a Credit Suisse fund manager.

"Small and midcaps generally perform best at turning points. This is because they're more volatile and illiquid as an asset class, which means that the risks are higher but they also offer higher returns," said Felix Meier, who manages the bank's Equity Fund Small and Mid Cap Germany B.

The fund, with a volume of about 140 million euros (£122 million), has gained about 10.4% this year, outperforming its benchmark, the Xetra Midcap PF Index, which added 7.1% in the same period.

The Midcap PF Index combines Frankfurt's midcap and technology stocks in one index, and has outperformed German blue chips by 53% since the top-30 index hit a five-and-a-half-year low in early March.

"Small and midcap stocks, in general, react much more strongly to a recovery than large caps. (This holds true) especially now that the credit markets are de-frosting again and macroeconomic data indicate that the low point has been reached or passed," he said, pointing to recent Ifo and ZEW data.

The Munich-based Ifo institute's business climate index, based on a monthly poll of some 7,000 firms, rose this week for a second straight month, nurturing hopes that Europe's biggest economy might have passed the worst.

Last week the Mannheim-based ZEW economic think tank's monthly poll of economic sentiment hit a 3-year high.

PRAGUE - Slovakia and the Czech Republic signed agreements on Friday to build a nuclear reactor in Slovakia at an estimated cost of 4-6 billion euros ($5.6-$8.4 billion) to increase the country's energy independence.

Under the contracts, Czech majority state-owned utility CEZ and Slovak state energy company JAVYS formed a joint venture to build and operate the new plant at Jaslovske Bohunice in western Slovakia.

The Slovak firm will take a 51% stake in the venture.

In central and eastern Europe, Bulgaria, Romania, the Czech Republic and Poland are all planning to build nuclear plants.

Poland aims to build at least one by 2020. Hungary passed a resolution in March allowing for preparatory work to begin on extending the Paks nuclear power plant.

Slovakia became dependent on electricity imports after it had to shut two 440 MW units at the Soviet-designed Bohunice nuclear plant as part of the agreement to enter the European Union. Slovakia still operates two units at Bohunice.

The country has already decided to complete two extra semi-built units at its second nuclear power plant at Mochovce, a project led by Enel unit Slovenske Elektrarne.

Neither side in Friday's agreement would unveil how they plan to finance the project, saying details including size of the unit and timetable should be known after a feasibility study is ready in 2010.

The Czech Republic is a net exporter of electricity but Prime Minister Jan Fischer warned on Friday the country would turn into an importer as of 2015, before the planned construction of two new units at CEZ's Temelin nuclear plant and other energy projects come on line around 2020.

SAO PAULO - Brazil's currency gained sharply on Friday, heading for its biggest monthly surge in more than six years, on rising investment inflows to Latin America's largest economy.

The real BRBY strengthened 1.9% to 1.971 per U.S. dollar, crossing the psychologically important 2 per dollar mark for a second session in three. The currency soared 10.4% in May, the biggest monthly rally since April 2003.

Brazil's currency rally tracked the dollar's plunge against a basket of major global currencies as increasing optimism that the global economy is over the worst of the recession buoyed demand for riskier assets.

"The trend really is for a strong real as the crisis dissipates," said Marcos Forgione, currency trader at the B&T brokerage in Sao Paulo.

Yields on interest rate futures contracts were mostly lower on expectations a stronger Brazilian currency will ease inflation pressures and pave the way for the central bank to cut the benchmark Selic rate further from an all-time low of 10.25%.

Brazilian stocks fell, weighed by concerns on Wall Street over the looming bankruptcy of automaker General Motors Corp. and data showing much deeper than expected business activity slump in the U.S. Midwest.

The benchmark Bovespa index of the Sao Paulo stock exchange dropped 1.1% to 52,436 points. Despite the losses on Friday, the index has jumped 11% in May, its third straight month of gains.

State-run energy giant Petrobras fell 1.5% to 34.12 reais, its first decline after gaining 6.6% over five straight sessions, even as crude oil prices jumped 1.6% in New York CLc1. 

Mining giant Vale dropped 1% to 32.57 reais. 

WARSAW - Polish coal miner Bogdanka has set a price range of 42-48 zlotys per share in its initial public share offer, valuing Warsaw's largest market flotation so far this year at up to 528 million zlotys ($164 million), it said on Friday.

Poland's centre-right government remains determined to push through several privatisation listings in the coming months starting with Bogdanka, hoping that the recent recovery on world markets will encourage investors to take part.

Bogdanka, which the price range values at 1.4-1.6 billion zlotys, said earlier it aimed to tap 450 million zlotys from the market in order to finance its ambitious investment plans.

The final issue price will be set on June 5 and the market debut is scheduled to take place by June 25.

The government wants to float a significant chunk of the country's largest utility Polska Grupa Energetyczna, estimated at 4-5 billion zlotys, and sell all of its shares at the only listed power producer Enea ENAE.WA.

Poland had a rough time selling shares in state-owned companies last year amid tumbling equity markets. Enea's IPO, the last such listing, was completed in November thanks to Sweden's Vattenfall, which took a 19% stake.

DUBAI - Some Islamic banks have imposed a maintenance fee of Dh25 on all saving accounts which have a balance of less than Dh3,000.   They also started handling these accounts like current accounts, which earn no interest.  The new charges came into effect from the first week of May, Al Khaleej Arabic daily reported.

These banks applied conditions if clients wished to have saving accounts without a minimum balance of Dh3,000 and without paying the maintenance fees.

These conditions include linking the account to a fixed deposit, thus making it the deposit's cash account, or acquiring another product of service offered by the bank.

The new fees do not apply to salary transfer accounts arranged by companies.

The banks attributed the fees to increasing costs in the past period, adding that they had to make such minor changes to offer good services.

TOKYO - The Nikkei stock average rose 0.8% to its highest in more than seven months on Friday, buoyed by commodity-linked firms such as oil and gas field developer Inpex and shippers like Mitsui O.S.K. Lines on growing expectations for demand from China.

In a jump just before the close, the benchmark cracked the 9,500 resistance level that it had failed to breach on several previous attempts, rising to close at 9,522.50, the day's high.

The Nikkei gained 71.11 points, having broken above its 200-day moving average, which had been acting as resistance, earlier this week.  It rose 3.2% on the week, its biggest weekly increase in three weeks. For the month, it was up 7.9%, logging its third straight month of gains, the first such stretch since mid-2007.

The broader Topix rose 0.3 percent.  A surge in commodities, fired by demand from China, buoyed a wide range of shares.

The Baltic Exchange's main sea freight index, which gauges the cost of shipping resources including iron ore, cement, grain, coal and fertiliser, rose on Thursday to an eight-month high, helped by China's demand for goods.

Mitsui O.S.K. Lines rose 5.1% to 676 yen, Kawasaki Kisen gained 6.4% to 431 yen, and Nippon Yusen climbed 5.3% to 456 yen.

The sea transport sub-index jumped 5.5%, becoming one of the biggest gainers among the sub-indexes.

Inpex rose 6.3% to 771,000 yen and Showa Shell Sekiyu gained 4% to 942 yen. But Nippon Oil rose only 0.4% to 580 yen.

Sumitomo Metal Mining, a smelter of non-ferrous metals, edged down 0.6% to 1,348 yen in the last few minutes of trade, but has gained almost 19% over the past two weeks on expectations of a global pick up in demand for industrial and precious metals.

Fellow smelter Dowa Holdings rose 1.2% to 424 yen.

Copper futures HGN9 hit a three-week high on Thursday after strong U.S. manufacturing data, while gold climbed to a two-month high, supported by a weaker dollar and its appeal as an inflation hedge on rising oil prices.

But Seven & I Holdings Co Ltd fell 1.7% to 2,300 yen after media reports that Japan's Fair Trade Commission plans to order the company's convenience store unit Seven-Eleven Japan to stop restricting merchandise markdowns by franchisees.

Citing sources familiar with the matter, Kyodo News said the FTC found that Seven-Eleven had been forcing franchisees not to cut prices even when some stores wanted to clear food items that were near their expiry dates, a practice deemed by the watchdog to be an abuse of the retailer's dominant position.